The Whisper Number Impact: Thursday Earnings Preview

Expected earnings reports and the whisper number impact for January 5th, 2011.

Knowing how likely a stock's price will move following an earnings report will help you make better trades. Many investors believe that beating or missing the whisper number has the greatest impact on stock movement. If the number is exceeded, the stock is rewarded and prices move higher. If the number is missed, the stock is punished and prices move lower. Unlike the analysts estimate, the "whisper number" from WhisperNumber.com has actually been proven to have a greater impact on stock movement.

Angiodynamics (NASDAQ:ANGO) reports earnings after market close. The whisper number is $0.12, in-line with the analysts estimate. ANGO has a 60% positive surprise history (having topped the whisper in six of the 10 earnings reports for which we have data). The average price movement (starting at next market open) within 10 trading days of these 10 earnings reports is -1.6%. The strongest price movement of +5.5% comes within 20 trading days when the company reports in-line with the whisper number. Last quarter the company reported earnings in-line with the whisper number. Following that report the stock realized a 4.9% gain in 10 trading days.

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Family Dollar Stores (NYSE:FDO) reports earnings after market close. The whisper number is $0.72, four cents ahead of the analysts estimate. FDO has a 53% positive surprise history (having topped the whisper in 18 of the 34 earnings reports for which we have data). The average price movement (starting at next market open) within 10 trading days of these 34 earnings reports is +0.1%. The strongest price movement of +5.5% comes within 3-0 trading days when the company tops the whisper number. Last quarter the company reported earnings two cents ahead of the whisper number. Following that report the stock realized a 10.3% gain in 20 trading days.

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Apollo Group (NASDAQ:APOL) reports earnings Jan. 5th, before market open. The whisper number is $1.14, four cents short of the analysts estimate. Apollo has a 71% positive surprise history (having topped the whisper in 25 of the 35 earnings reports for which we have data). The average price movement (starting at next market open) within 10 trading days of these 35 earnings reports is +0.5%. The strongest price movement of +2.1% comes within 20 trading days when the company tops the whisper number. Last quarter the company reported earnings 10 cents ahead of the whisper number. Following that report the stock realized a 5.0% gain in 30 trading days.

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Monsanto (NYSE:MON) reports earnings before market open. The whisper number is $0.16, in-line with the analysts estimate. Monsanto has a 70% positive surprise history (having topped the whisper in 19 of the 27 earnings reports for which we have data). The average price movement (starting at next market open) within 10 trading days of these 27 earnings reports is +1.5%. The strongest price movement of +3.2% comes within five trading days when the company tops the whisper number. Last quarter the company reported earnings six cents ahead of the whisper number. Following that report the stock realized an 15.5% gain in 10 trading days.

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When analyzing the data we collect, the most important aspects are how a company reacts to beating or missing the whisper number, the average post earnings price movement, and in what time frame (see link in profile to receive alerts). Keep in mind that trading on whispers is a technical play on market psychology, rather than a bet on a company's fundamental strengths.

A company's reaction to the whisper number expectation is the key - on average companies that exceed the whisper are "rewarded," while companies that miss are "punished" following an earnings report.

According to the Wall Street Journal, "the percentage of companies that have beaten expectations often is cited as a barometer of corporate profitability, an indicator of how well the economy as a whole is doing or a predictor of where the stock market is going. What goes unsaid, however, is that these positive surprises are becoming so common they are nearly universal. They are predetermined in a cynical tango-clinch between companies and the analysts who cover them. And there is no reliable evidence that the stock market as a whole will earn higher returns after periods with more positive surprises."

"In short, there isn't anything surprising about earnings surprises. They aren't the exception; they are the rule. "All the numbers are gamed at this point," says James A. Bianco, president of Bianco Research.